User-Generated Content Will Be Profitable, One Day, Maybe

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February 2009

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User-generated content (UGC) has permeated the Internet, for better or for worse. The stuff can be expected to make up sections of a Web site, such as news content comments, or is the basis for entire sites, as with YouTube. We expect that the number of user-generated content creators will climb from 83 million in 2008 to 115 million in 2013. Those content creators will make up 51.8 percent of all Internet users in 2013, up from 42.8 percent in 2008.
With the increase of creators comes the increase in Internet population consuming some form of UGC: from 116 million in 2008 to 155 million in 2013. With that huge number of potential consumers interacting on some level with this new medium, an eMarketer report from January 28 asks, "Can User-Generated Content Change Your World?"

The initial view was that user-generated content would increase advertising volume at the same rate as its increasing audience. This optimism is exemplified in Google's November 2006 purchase of YouTube for $1.65 billion. But that feeling has reversed for the following perceived reasons:

UCG is inherently unpredictable, and represents marketer risk
There are no UGC advertising standards and no way to measure effectiveness
Sites like YouTube are expanding into licensed professional media, which is where the money and ad safety actually lie
Our recession has reduced online video, social and ad spending, directly affecting UGC ad spending estimates

The Paul Verna report "User-Generated Content: More Popular than Profitable" (January 2009) would argue that UGC has to evolve before business plans can happen. The players are paying attention, but perceived shortcomings have created a gridlock. Verna does offer a solution to realize UGC potential: marketers and site publishers must be willing to work together. Marketers must take risk and find safe havens within social media channels. Site publishers must create environments where marketers feel comfortable investing their advertising dollars.

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